Stricter Sebi scrutiny may see startups delaying their IPOs

The Securities and Exchange Board of India (Sebi) is believed to have called for more details on the key performance indicators (KPI) being put out by startups in their draft red herring prospectuses (DRHP). Among the companies that could see their public issue plans delayed are PharmEasy, OYO Hotels and Snapdeal.

Sebi's concerns stemmed from the steep corrections in the stock prices of startups after listing which have lost anywhere between 30% and 60% of their offer prices. Many of them listed at a discount to the offer price and had lost value even before the tech meltdown in global markets.
Sebi's concerns stemmed from the steep corrections in the stock prices of startups after listing which have lost anywhere between 30% and 60% of their offer prices. Many of them listed at a discount to the offer price and had lost value even before the tech meltdown in global markets.

With the capital markets regulator now taking a closer look at the disclosures made by startups, several of these new age tech companies (NATC) could see their initial public offerings (IPOs) delayed.

The Securities and Exchange Board of India (Sebi) is believed to have called for more details on the key performance indicators (KPI) being put out by startups in their draft red herring prospectuses (DRHP). Among the companies that could see their public issue plans delayed are PharmEasy, OYO Hotels and Snapdeal.

In February, Sebi had floated a consultation paper, proposing more disclosures and transparency from NATCS with regards to their operating metrics. The regulator wants companies to justify the valuations they are asking for by providing details of KPIs as also other metrics. It also wants some of the data to be authenticated by a third party. As a consequence, valuations of future IPOs of NATCs could be significantly lower.

Sebi’s concerns stemmed from the steep corrections in the stock prices of startups after listing which have lost anywhere between 30% and 60% of their offer prices. Many of them listed at a discount to the offer price and had lost value even before the tech meltdown in global markets.

Anup Jain, managing partner, Orios Venture Partners, said that late-stage companies are going to see a delay in their IPOs. “With the bullishness cooling off, profitability is now a lot more important. In private markets, the focus is on growth and less so on profits but when you progress to public markets, you have to become profitable. This principle seems to have been cast aside in the hype,” Jain said.

In Q4FY22, One97 Communications, the parent of Paytm reported an Ebitda loss of `729 crore while Zomato posted a loss of `449.7 crore, according to analysts at ICICI Securities and Jefferies, respectively.

Ankur Bansal, co-founder of BlackSoil, said unless companies are profitable, their IPOs may not be successful. “Founders are now raising money through debt to meet their operating expenses. They now do not want to raise money through equity because they feel the markets are jittery. They want to keep cash in the bank so the next round of fundraising can happen at a more opportune time rather than immediately.

According to the latest Tracxn data, between April 1 and May 25, funding received by startups stood at $4.15 billion compared with $10.11 billion during the January-March quarter.

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